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Why the owners of the bussines given priority to the retain earnings instead of the dividend?
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Why Auditors prefer to use before tax net earnings instead of after tax net earnings?
Most auditors prefer to use before-tax net earnings instead of after-tax net earnings when calculating materiality based on income statement chiefly because it eliminates the impact of external influences (ie. Changes in tax laws, changes in the tax rates etc.) that could have a significant impact on a company`s net earnings and subsequently the net income materiality base.
How do you value businesses?
Mainly 4 techniques to value businesses # Net Asset Valuation # Dividend Valuation Model # P/E Ratio (Earnings based) # NPV Net asset valuation simply looks at the net assets on the balance sheet of the company being valued. If the company looking to takeover the business is intending to asset strip it then book values are ignored, instead they use realisable values. Otherwise if a going concern, non-monetary items will be valued at replacement costs & monetary items at book values. For any business this valuation should be used to acertain the minimum value to be paid for the business Dividend Valuation Model is based on the equation below P0 = d0(1+g) / (Ke- g) We know that the share price is simply the present value of the future dividend payments discounted at the cost of equity. The above equation simply uses this where d is the dividend paid now, g is growth rate, Ke is cost of equity (i.e. shareholders expectations - required rate of return) The equation can be re written as P0 = d1 / (Ke- g) as a perpetuity of the future income d1 There are some issues with this model # Assumption of a constant dividend each year # Growth rate consistent & constant # Ke assumed not to change P/E Ratio - Earnings based is dependent on the P/E ratio of the business. The P/E ratio of any business signifies 3 things # Status # Prospects # Risk Price/Earning Ratio = Share Price/EPS where EPS is the earning per share EPS = Earnings/number of ordinary shares The model looks at the product of P/E ratio and earnings for the Business to determine its valuation say for example A Co P/E ratio is 15 & are forecasted earnings are £150m then, Value of A is 15*150 = 2250m This really gives us the market capitalisation of the company Issues - Main issue is whether P/E is reliable & accurate. An under performing business with excellent future prospects will be undervalued using this method Net Present Value is the best method for business valuations. This is the present value of future cash flows discounted at the WACC (hence takes into consideration both the cost of equity & debt)
What should a post-closing trial balance contain?
Post closing trial balance contains all accounts that have not been closed (i.e assets, liabilities and owners equity accounts) The PCTB does not contain Net Income or even Gross Income, but instead contains "Retained Earnings" Retained earnings is what the company clears after all expenses and stock dividends (if any) have been paid. Or put simply, all general ledger accounts that are not "closed". GAAP formula for figuring the different types of Revenue are: Gross Revenue (income) - Expenses = Net Revenue (income) Net Revenue (income) - Dividends paid on Stock (if applicable) = Retained Earnings
Why net income differs from net cash flows from operating activities?
Because of accrual accounting. Wikipedia accrual vs. cash basis of accounting.You make sales on credit, but haven't collected cash yet.NI goes up, but A/R goes up instead of cash.You have earnings but no cash.
Do you still get income tax returnes when your self employed?
Of course you must file returns. You will also most likely get forms called a 1099 from some of those who paid you or you brought from, which essentially show your in business. You are required to make estimated payments every 3 months during the year, where you pay the taxes estimated to be due on your projected annual earnings (instead of having an employer do it through payroll withholding).
What is the stock that reinvests its earnings in the business instead of paying regular dividend called?
a growth stock
One key advantage of a residual dividend policy is that it enables a company to follow a stable dividend policy is that true?
No, that statement is not true. A residual dividend policy does not aim to maintain a stable dividend, but instead distributes dividends based on the residual earnings left after the company has financed all capital projects and met its financial obligations. This means that the dividend amount can vary depending on the company's earnings and cash flow, rather than following a stable dividend policy.
Does dividend reduce profits?
When a corporation declares and pays a dividend, the dividend does not reduce the current accounting period's profit reported on the income statement. In other words, a dividend is not an expense.Dividends will reduce the amount of the corporation's retained earnings. Retained earnings are reported in the stockholders' equity section of the balance sheet.If a corporation has very profitable uses for its cash, its future profits might be less if it pays dividends instead of reinvesting the cash dividend amounts into profitable projects.
Why does Earnings Per Share is used for decision making purpose instead of Cash Earnings Per Share?
what is the earnings for a vet
What are the dividend payment methods?
There are several dividend payment methods, including cash dividends, stock dividends, and property dividends. Cash dividends involve distributing a portion of a company's earnings in the form of cash payments to shareholders. Stock dividends involve issuing additional shares of stock to shareholders instead of cash, increasing their ownership in the company. Property dividends involve distributing assets or property to shareholders as dividends.
What is meaning of dividend?
A monetary gain on an investment, much like earning interest on a bank account. Credit Unions typically use "dividend" instead of "interest" in their various accounts."dividend is given from the profit earn by the company to the share holders of the company" simply telling "dividend is the part of the profit"
How private company share profit among its shareholder?
When a private company has shareholders, the profit, or some portion of it for distribution, is declared a dividend by the company's operators or directors. The amount of the profit is divided by the number of outstanding shares at the time of dividend declaration. Everyone holding a share receives that amount of money or other consideration as the company may deem appropriate. For example: A company has a $2 million profit and declares a dividend of $1 million. The other $1 million stays in retained earnings. If the company has 1 million outstanding shares, shareholders receive $1 per share. If you hold 1000 shares, your part of the dividend is $1000. Sometimes companies hand out extra shares instead of cash dividend checks.
What is a stock that reinvests its earnings in the business instead of paying dividends?
A growth stock.
Does a company pay you when you get a low earnings slip instead of being laid off?
Yes i Does
Why Auditors prefer to use before tax net earnings instead of after tax net earnings?
Most auditors prefer to use before-tax net earnings instead of after-tax net earnings when calculating materiality based on income statement chiefly because it eliminates the impact of external influences (ie. Changes in tax laws, changes in the tax rates etc.) that could have a significant impact on a company`s net earnings and subsequently the net income materiality base.
What do you mean by retained earnings?
Retained Earnings is that portion of annual profit of a company which is not distributable to share holders of company and instead of distribution to share holders, this amount is kept in reserves of company to be spend on available future investment oppotunities to or to fulfil working capital requirement or purchase of fixed assets as well.
What is a stock that reinvests its earnings in a business instead of paying regular dividends called?
a growth stock
